Analysis of Price, Wages and Unemployment

INTRODUCTION

Since Bangladesh followed a socialist economy by nationalizing all industries after its independence, a slow growth of experienced entrepreneurs, managers, administrators, engineers, or technicians underwent. There were critical shortages of essential food grains and other staples because of wartime disruptions. Foreign exchange resources were minuscule, and the banking and monetary system was unreliable. Although Bangladesh had a large work force, the vast reserves of less trained workers were largely illiterate, unskilled, and underemployed commercially exploitable industrial resources, except for natural gas, were lacking.

Bangladeshi leaders slowly began to turn their attention to developing new industrial capacity. The steady economic model adopted by these early leaders, however-including the nationalization of much of the industrial sector-resulted in inefficiency and economic stagnation. Beginning in late 1975, the government gradually gave greater opportunity to private sector participation in the economy. Many state-owned enterprises have been privatized, with banking, telecommunication, aviation, media, jute including a range of other vital sectors have been privatized.

From 1991 to 1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund (IMF) but failed to follow through on reforms in large part because of preoccupation with the government's domestic political troubles.

Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 2001 but stabilized in the USD3 to USD4 billion ranges. In January 2007, reserves stood at $3.74 billion and they increased to $5.8 billion by January 2008, in Nov 2009 it surpassed $10.0 billion according to the Bangladesh Bank.

Efforts to achieve Bangladesh's macroeconomic goals have been problematic mostly due to corruption within the government. The privatization of public sector industries has proceeded at a slow pace-due in part to worker unrest in affected industries-although on June 30, 2002, the government took a bold step as it closed down the Adamjee Jute Mill, the country's largest and most costly state-owned enterprise. The government also has proven unable to resist demands for wage hikes in government-owned industries. Access to capital is impeded. State-owned banks, which control about three-fourths of deposits and loans, carry classified loan burdens of about 50%.

The IMF and World Bank predict GDP growth over the next 5 years will be about 6.5%, well short of the 9-10% needed to lift Bangladesh to Mid Income Nations. The initial impact of the end of quotas under the Multi-Fiber Arrangement has been positive for Bangladesh, with continuing investment in the ready-made garment sector, which has experienced annual export growth in excess of around 20%. Foreign investors in a broad range of sectors are increasingly frustrated with the politics of confrontation, the level of corruption, the slow pace of reform and privatization of the public sector and the lack of basic infrastructure. While investors view favorably recent steps by the interim government to address corruption, governance, and infrastructure issues, most believes it is too early to assess the long-term impact of these developments.

LITERATURE REVIEW

Price:

Market value that will purchase a definite quantity, weight, or other measure of a good or service(Business Dictionary). It may be fixed by a contract (such as sale of goods contract), left to be determined by an agreed upon formula at a future date, or discovered or negotiated during the course of dealings between the parties involved. In commerce, it boils down to what---

(1) A buyer is willing to pay,

(2) A seller is willing to accept and

(3) The competition is allowing to be charged.

With product, promotion, and place of marketing mix, it is one of the business variables over which a firm can exercise some degree of control. It is a criminal offense to manipulate prices (see price fixing) in collusion with other suppliers, and to give a misleading indication of price such as charging for items that are reasonably expected to be included in the advertised, list, or quoted price also called sale price and selling price.

in other word, the sum or amount of money at which a thing is valued, or the value which a seller sets on his goods in market; that for which something is bought or sold, or offered for sale; equivalent in money or other means of exchange; current value or rate paid or demanded in market or in barter is defined as price.

Wages:

The share of the annual product or national dividend which goes as a reward to labor, as distinct from the remuneration received by capital in its various forms. This economic or technical sense of the word wages is broader than the current sense, and includes not only amounts actually paid to laborers, but also the remuneration obtained by those who sell the products of their own work.

The definition of wages according to the Wages Act 1986 is any sums payable to the employee by an employer in connection with that employment.

Wages therefore include fees, bonuses, commissions, holiday pay or other emolument relevant to the employment whether specified in the contract of employment or not. Wages also include SSP, SMP or company sick pay and any other statutory payments e.g. payment for time off for trade union duties, jury service etc. Wages do not include the repayment of expenses, any compensation or severance pay or redundancy pay. Payments in kind are normally excluded from the definition except items such as luncheon vouchers that are transferable into a fixed monetary value. Payment in lieu of notice is effectively damages for breach of contract, and as such is not considered to be wages under the Wages Act 1986. It is therefore generally made free of tax and NI. However, if the terms and conditions specifically state this as a contractual right, it will become taxable. Pay statement/wage slip every employee has the right to be given by their employer, at or before the time of salary/wage payment, a written itemized pay statement - as per the Employment Rights Act 1996. This statement must contain: Gross earnings Amounts of any variable and fixed deductions and the purposes for which they are made Net earnings Where different parts of net amount are paid by different methods, the amount and method of each part payment must be shown.

Gratuities customarily received by an individual in the course of his employment from persons other than his employer and reported by the individual to his employer shall be treated as wages paid by his employer. The reasonable cash value of remuneration paid in any medium other than cash shall be estimated and determined in accordance with rules prescribed by the board. The value of room and board, if set by agreement between the employer and employee, must be reported as wages. Where there is no agreement, the department uses the minimum values assigned to room and board as established under the wage and hour program.

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Types of Payments are not Considered Wages

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By statute, the term "wages" shall not include:

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A)Â Â Â Â The amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees generally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), on account of:

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i)Â Â Sickness or accident disability (but, in the case of payments made directly to an employee or any of his or her dependents, this subparagraph shall exclude from the term "wages" only payments which are received under a workers' compensation law); or

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ii)Â Medical or hospitalization expenses in connection with sickness or accident disability; or

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iii)Â Death;

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B)Â Â Â Â Any payment on account of sickness or accident disability, or medical or hospitalization expenses in connection with sickness or accident disability, made by an employer to, or on behalf of, an employee after the expiration of six calendar months following the last calendar month in which the employee worked for such employer;

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C)Â Â Â Â Any payment made to, or on behalf of, an employee or his beneficiary (i) from or to a trust described in section 401(a) of the United States Internal Revenue Code which is exempt from tax under section 501(a) of the United States Internal Revenue Code at the time of such payment unless such payment is made to an employee of the trust as remuneration for services rendered as such employee and not as a beneficiary of the trust, or (ii) under or to an annuity plan which, at the time of such payment, is a plan described in section 403(a) of the United States Internal Revenue Code;

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D)Â Â Â Â The payment by an employer (without deduction from the remuneration of the employee) of the tax imposed upon an employee under section 3101 of the United States Internal Revenue Code;

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E)Â Â Â Â Any amounts received from the federal government by members of the National Guard and organized reserve, as drill pay, including longevity pay and allowances.

Unemployment:

Unemployment means the state of being without any work both for educated and uneducated person. Unemployment is defined as a situation where someone of working age is not able to get a job but would like to be in full time employment. It is the state of an individual looking for a paying job but not having one. Unemployment does not include full-time students, the retired, children, or those not actively looking for a paying job. It is costly not only for individual and families but also for whole economy and society. It wastes natural resources, play role Lessing income and economic output. Long term unemployment decreases the technical and social skills of unemployed person. It also reduces employability and make less attractive to be a potential worker or employer. It related to the fiscal costs to the government.

Bangladesh is one of the poorest nations in the world. With purchasing power parity, its GDP in 2000 was $203 billion and its rate of growth was 5.3%. Although this growth rate inspires optimism, analysts determined that it will not be enough to improve conditions in Bangladesh. A double-digit unemployment rate is one reason for this deduction. Many factors impede development in Bangladesh's economy. Economists reason, for example, that Bangladesh is slow to utilize energy resources such as natural gas, which prevents rapid economic expansion. Moreover, annual floods damage property and reduce produce harvests, increasing the need for government programs. Most importantly, corruption removes)

**Demand Deficient Unemployment:

Demand deficient unemployment occurs in a recession or period of very low growth. If there is insufficient aggregate Demand, firms will cut back on output. If they cut back on output then they will employ fewer workers. Firms will either cut back on recruitment or lay off workers. The deeper the recession, the more demand deficient unemployment there will be. This is often the biggest cause of unemployment, especially in a downturn. This is also known as cyclical unemployment - referring to how unemployment increases during an economic downturn.

**Structural Unemployment:

This is unemployment due to inefficiencies in the labor market. It may occur due to a mismatch of skills or geographical location. For example structural unemployment could be due to:

Occupational immobility. There may be skilled jobs available, but many workers may not have the relevant skills. Sometimes firms can struggle to recruit during periods of high unemployment. This is due to the occupational immobility.

Geographical immobility. Jobs may be available in London, but, unemployed workers may not be able to move there due to difficulties in getting housing etc.

Technological change. If an economy goes through technological change some industries will decline. This is likely to lead to structural unemployment. For example, new technology (nuclear power) could make coal mines close down leaving many coal miners unemployed.

**Real Wage Unemployment / Classical Unemployment:

This occurs when wages are artificially kept above the equilibrium. For example, powerful trades unions or minimum wages could lead to wages above the equilibrium leading to excess supply of labor (this assumes labor markets are competitive) Keynesian analysis suggests a fall in AD can lead to real wage unemployment as wages are sticky downwards and a fall in AD doesn't lead to wages clearing.

**Frictional unemployment:

This occurs when workers are in between jobs e.g. school leavers take time to find work. There is always likely to be some frictional unemployment in an economy as people take time to find a job suited to their skills.

**Voluntary Unemployment:

This occurs when workers choose not to take a job at the going wage rate. For example, if benefits offer a similar take home page to wage - tax, the unemployed may feel there is no incentive to take a job.

Relation between unemployment and price inflation:

Unemployment and inflation are inversely related in the long run and short run. In the long run the rate of unemployment depends on various features of the labor market such as minimum wage law, the market power of unions, the role of efficiency wages and the effectiveness of job search. By contrast, the inflation rate depends primarily on growth in the money supply. Therefore in the short run just opposite is true. If we aggregate demand expand and move the economy up along the short run aggregate supply curve, it can expand output and lower unemployment for a while, but only at the cost of a more rapidly rising in price Laval. If we contract aggregate demand and move the economy down the short run aggregate supply curve, they can lower inflation, but only at the cost of temporarily lower output and higher unemployment.

B A 10 C

5

0 3 6

Suppose the expected inflation rate and unemployment rate are 10% and 6% at point A in the graph. A short run Phillips curve (SRPC) passes through this point A. When inflation rate rises above its expected rate, unemployment rate falls under its natural rate. This movement shows at point A to B that brings an increase in the inflation rate and a decrease in the unemployment rate. Similarly it will be reversed if inflation rate falls below its expected rate. In this case it will be moved point B to C. It brings a decrease in the inflation and a increase rate in the unemployment rate.

Relation between wages and unemployment:

Minimum wages cased unemployment. If the wage is kept above the equilibrium level for any reason, the result is unemployment. Although minimum wages are not the predominant reason for unemployment in our economy, they have an important effect of certain groups with particularly high unemployment rates. More-over the analysis of minimum wages is a natural place to start because, as we will see, it can be used to understand some of the other reason for structural unemployment.

Minimum-wages laws matter most for the least skilled and least experienced members of the labor force, such as teenagers. Their equilibrium wages tend to be low and therefore, are more likely to fall below the legal minimum. It is only among these workers that minimum-wages laws explain the existence of unemployment.

When a minimum wage law forces the wage, to remain above the level that balances supply and demand, it raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level. There is a surplus of labor. Because there are more workers willing to work than there are jobs, some workers are unemployed.

Wage

Surplus of labor = Labor

Unemployment. Supply

Minimum

Wage

W1

Labor

Demand

0 L1 L2 L3 Quantity of labor

Unemployment from a wage above the equilibrium level in this labor market, the wage at which supply and demand balance is W1. At this equilibrium wage, the quantity of labor supplied and the quantity of labor demanded both equal L2. By contrast, if the wage is force to remain above the equilibrium level, perhaps because of a minimum wage law, the quantity of labor supplied rises to L3 and the quantity of labor demanded falls to L1. The resulting surplus of labor, L3- L1 re presents unemployment.

Wage structure and unemployment:

The labor market and its reform are an important topic how to realize high employment and unemployment rates. Reforms of labor market in order to make them more flexible are one of the key recommendations to improve employment and growth. Flexibility of wages is one of the preconditions for a functioning market economy. Labor market flexibility is concerned with different wage structures. But we assume that the nominal wage level does not change. Under this condition different ways to changes the wage structure including the effect of minimum wages are discussed:

The flexible wage structure:

a) Between different industries:

The economic effects of wages structure become more differentiated if one industry - say the lather industry - and another industry - say the steel industry - is discussed.

b) Same industry in different companies:

Although two companies produce the same goods but they pay different wages.

c) Between different occupations within same industry:

The wages of a computer operator and a supervisor is different although they work in the same industry.

ANALYSIS OF THE TOPICS

Real wages :

Real wages is the best way to judge a labors benefit than nominal wage. Nominal wages is the sum of real wages and inflation. So real wages = nominal wages - inflation. Adam smith says, "The labor is rich or poor, well or ill rewarded not in proportion to the nominal wages but in proportion to the real wages." Now we will focus on the real wages about different sectors and areas. The objective of the writing is to concentrate on the real wages of the last 10 years. Real wages may be different in rural, urban, sector, and gender related discrimination.

Real wages different in various sector:

Now we are going to analyze the real wages trend in different sector. An analysis of detailed sect oral difference of real wages is important. There are many developed theories about real wage among different sectors. But theories are not always true. The real wage series of SYB shows the expected pattern, the index of real wage in manufacturing is higher than that of agriculture or construction or trade. Wages is higher in construction in trade compared to both agriculture and manufacturing the ratio stands 1.48 during 2006(LFS).

According to the statistical year book of Bangladesh (SYB), the following table represents real wages series for manufacturing, agriculture, construction and general:

In agriculture it is looked from the index that the real wages growth is positive. Index of real wage increased 19% during 2000-2006. In the estimation of real wage a controversial question is deflator that should be used for conversion of nominal wages into real wages. In order to convert wages rates of urban sectors CPI for urban industrial sectors having produced by BBS. In the absences of CPI for rural wage earners, it may be used either CPI for all rural population or that for the industrial workers to compare the real wage in agriculture with that of other sectors, a deflator may commonly be used.

As shown by the annual reports (above table) real wages growth in manufacturing is spectacular, especially 2000-2006 increased 46%. If considered the period of 2000-2006, the real wages index rises in agriculture and in construction were 19% and 7% respectively. In contrast, the rise of real wage was in manufacturing 46%. This trend is especially true for construction sector which is mainly concentrated in urban areas. According to the HIES and LFS data reports there are substantial differences in the pace of growth of real wage. Because the beginning months of 2005 experienced disruption of economic activities as an aftermath of the serious flood of 2004 which affected half of our country . In the manufacturing sector, RMG, (a manufacturing sub sector) contributes 60% of all manufacturing employment. Wage in RMG is much lower than other manufacturing sub sector (Salman 2001 Rahman et. al.2007).

The lower wages of manufacturing relative to construction and trade give the idea of lower productivity of manufacturing because of inter sect oral transfer of resources. Manufacturing sectors appoint educated employees then other sectors. So there wages should be higher. The lower wage of manufacturing workers is likely to be routed in various types of segmentation of the labor market it provides year round job and in many sub sectors the tasks are physically less demanding relative to construction. The other important factor behind the difference real wages is gender gap. Female's wage is much lower than male.

Ratio of Male and Female Wage in Bangladesh: 1996 to 2006

Location

Sex

Year

1996

2000

2006

Urban

Male

60

85

111

Female

36

59

69

Male/Female

1.67

1.44

1.61

Rural

Male

44

63

93

Female

25

35

61

Male/Female

1.76

1.80

1.52

Urban and Rural

Male

46

65

95

Female

26

38

63

Male/Female

1.77

1.71

1.51

Source: LFS Various Years.

The wage gap between males and females is high. The average daily wage for males was 60(tk.), whereas it was only 36 taka for females in 1996. The wage gap is more severe in rural areas than it was in urban areas. In 2006 the wage comparatively became high but wage gap was continued throughout the country.

The large wage gap contributes to the high underemployment rate for females. Comparing different labor force surveys from 1989 through 2000 we find that the number of economically active population increased in total, in rural and in urban areas. From 1995-96 to 1999-2000, number of population in all categories such as, employed population, unemployed population, and underemployment rate in both rural and urban area has increased. Underemployment rate is higher for female than male at both urban and rural level. The same is true for the extended definition except in the case of the underemployment rate, which fell from 1995-96 to 1999-2000 at all three levels. Although the demographic dependency ratio is the same in both the usual and the extended definitions, the economic dependency ratio is significantly higher by the usual definition.

Regional Difference in Wage:

Reliable wage data can be used as an indicator of change of real wages. It can also provide an idea about cross sectional difference of various dimensions of regional inequality about wages. An attempt has been made here to take a closer look at the extent of change of wage in each Division on the basis of HIES data.

Division

Rice wage

2005

2000

Percentage change

Barisal

5.46

5.36

1.9

Chittagong

6.50

5.64

15.2

Dhaka

4.45

4.57

-2.6

Khulna

5.16

4.50

14.7

Rajshahi

3.58

3.65

-1.9

Sylhet

5.12

-

-

Division

Rice wage (kg/day) in urban areas

2005

2000

Percentage

Change

Barisal

5.60

6.31

-11.9

Chittagong

6.39

7.04

-9.2

Dhaka

5.83

5.69

+2.5

Khulna

5.16

4.91

+4.8

Rajshahi

3.58

4.26

-16.0

Source: HIES unit record data for nominal wage, MSB for rice price

Above tables show for the country as whole and urban areas respectively the changes of rice equivalent wage in the Divisions. For the country as a whole expected direction of change for Chittagong a large increase in wage and for Barisal a small rise of wage. Rajshahi experienced that wage has fallen. Dhaka experienced a large percentage of declines of real wage. Khulna experienced a second highest rise of wage.

Wages from abroad:

There are many labor force are employed in different parts of the world. Most of them are in Middle East. In 1976 to June 2009 about 65.7lach Bangladeshi workers went overseas. Our country has achieved success by exporting manpower fiscal year 2007-2008. 6.50 lacks went foreign for employment FY 2008-2009, which as 33.74% lower than previous.

When employment sliced increased then workers remittance growth in recent years. In 2007-2008 our worker stood at us $7914.78 million that 32.39% rise. In 2008-2009 remittance was $7914. 16million that increases 22.42% than previous year. Remittance of GDP and export earning has increased. Remittance as percent of GDP and export is 5.9% and 46.7% respectively. In 2008-2009 GDP and remittance as percent was 62.25% and 10.96% respectively.

Remittances as percent of GDP and export:

Fiscal year

As percent of GDP

As percent of export

2002-2003

5.9

46.76

2003-2004

5.98

44.35

2004-2005

6.37

44.47

2005-2006

7.75

45.62

2006-2007

8.83

49.09

2007-2008

10.02

56.09

2008-2009

10.96

62.25

Source: BBS, BPE, BB

Bangladesh Labor Force survey, 2005-2006 a labor is above 15 years of 4.74crore (men 3.61crore and women 1.13crore) is involved in a range of profession. The highest is in agriculture 48.10%. In Bangladesh Labor Force survey, 2002-2003, the total labor of over 15 years of age was 4.43core. Here it is also highest in agriculture sector. The two survey period agriculture workers decreased by 3.59%. According to survey of Bangladesh Labor Force 2005-2006, it is observant that highest 41.9% of labor force is involved in self employment. it was 44.7% in 2002-2003. It is sure that during two inspect time, self-employment labor force decreased by 2.72%. In 2005-2006, 18.14% of labor force was involved as daily laborer and 13.92% as full time workers. The latest input also noted that 21.73% of the labor was involved an unpaid household laborer an increase by 3.45%.

Statistics of unemployment:

Unemployment affects millions of people around the world. In 2009, the total number is estimated to have been 211.5 million. Although the current financial and economic crisis led to a particularly marked increase in unemployment, the global number of unemployed was enormous even before the start of this crisis. For example, between 1991 and 2007 it averaged 170.2 million. Actually, there was a trend increase throughout the last two decades. Thus unemployment has been a severe and growing problem for many years.

By contrast, most Asian countries have been quite successful in keeping unemployment low. Countries in East Asia have been the most successful. On average over 1991 to 2009, their regional unemployment rate was a mere 4.3%. Most countries in South Asia and in South-East Asia and the Pacific have been enjoying comparatively low unemployment as well. On average over 1991 to 2009, the unemployment rate stood at 4.6% in the former region and at 5.0% in the latter. Remarkably, it hardly rose in these regions during the current financial and economic crisis.

In 2008 the unemployment rate of Bangladesh fell from 18% in January to 15.5% in November. The average rate for 2008 was 16.7%. But at present Bangladesh has an unemployment rate of only 2.5%. Despite this dismal overall picture, there were encouraging developments in youth unemployment before the start of the current financial and economic crisis. Specifically, in Central and South-Eastern Europe (non-EU) and the Commonwealth of Independent States, the youth unemployment rate fell by more than a quarter from 1998 to 2008. In North Africa, it decreased by more than a fifth from 2000 to 2008. It fell by almost a fifth in Latin America and the Caribbean from 2003 to 2007 as well as in South-East Asia and the Pacific from 2005 to 2008. Unfortunately, young people were hard hit by the current crisis. Their unemployment rate rose particularly strongly in developed economies and the EU as well as in Central and South-Eastern Europe (non-EU) and the Commonwealth of independent states.

FINDING

Effect of unemployment:

Unemployment has a negative impact on health of the affected individuals. Using data on American men, Linn et al. (1985) report that, after losing their job, symptoms of depression and anxiety were significantly greater in the unemployed than in the employed.

Being unemployed even appear to reduce workers' life expectancy. Surveying the relevant literature from various industrial countries, Brenner and Mooney (1983) point out that unemployment is directly related to higher mortality rates, particularly due to cardiovascular disease, liver cirrhosis, and suicide.

For young people as for adults, unemployment not only causes current hardship but may also hinder future economic success. Using data on young American men, Ellwood (1982) reports that, although early unemployment does not set off a vicious cycle of recurrent unemployment, lost work experience leads to substantially and persistently lower wages.

Finally, there is evidence that unemployment increases crime: using US data, both Raphael and Winter-

Ember (2001) and Lin (2008) find strong effects of unemployment on property-crime rates. According to Lin (2008), a one-percentage-point rise in unemployment increases property crime by 4% to 6%.

A reduction of inequality in the human capital endowment may help reduce gender related differential of wage. In Bangladesh, school enrolment of girls has increased during the last decade. This is likely to have contributed to reduction of ratio of male-female wage in the urban areas. But its impact in the rural areas is not being felt and this is possibly due to the following reasons:

Although girls' school enrolment rate has risen, their school completion rate has not risen to the same extent and with education less than SSC level, wages are low and opportunity of employment is rather limited.

Girls who complete above primary or SSC level usually come from better off households and therefore they may not enter the labor market.

The better paid jobs are usually offered to men. The rate of employment creation is insufficient even for male workers as revealed by rise of underemployment rate. Therefore male female wage difference continues to be high.

Slow pace of reduction of gender wage gap (or even reversal in the urban areas) indicates that the societal factors influencing female wage have not shown much improvement.

Societal forces include the following:

Employers consider women as secondary earner who can accept low wage

Employers consider women's work as light work

Society's belief that better paid jobs should go to men

Women have lower bargaining power and therefore may be paid lower wage

Institutional processes do not provide adequate support to women workers

Employers' belief that certain jobs should not be offered to women as long as men are available.

The landowning employers in rural areas were asked a question in 1986 about why they do not engage women in the field activities of crop production. They replied that male workers are available and why should they employ women. Employers when asked the same question in 2005 gave very similar answer and said women do not have the experience and male workers work in groups where women cannot be included.

Male-female wage difference, which is apparently linked with pure gender bias, in fact, reflects the lower bargaining power of women. A number of factors operating at both household level and societal level result in lower bargaining power of female workers seeking paid job. For example, families' male guardians (especially from low income groups) sometimes keep a pressure that women accept employment even if the wage is low. Women without male earner in the household are required to earn to ensure survival.

The perception that women are secondary earners also influences the institutional wage setting process. Minimum wage recommended for the sub-sectors with a higher share of female workers is usually lower than sub-sectors of manufacturing industries dominated by male workers.

POLICY RECOMMENDATION

How to remove unemployment:

The faster information spreads about job opening and worker ability for the workers and farms.

The internet may help facilitate job search and reduced frictional unemployment.

In addition public policy can play a role that can reduce the economy's natural rate of unemployment.

Newspaper ads, internet job sites, college placement office and word of mouth all help spread information about job opening.

Increasing the worker education through schools or different trainings.

Inventing new working fields.

Self-employment.

Recommendation about price level:

Maintaining a sound monitory policy.

Over all price level in an economy must adjust to bring money supply and money demand into balance.

Reducing the power of syndicate. In order to avoid artificial price hike.

Fulfill the demand by importing necessary goods.

The base year of consumer price index should be updated.

CONCLUSION

It is a matter of great concern that so many decades after independence, dependable series of annual data on real wage in major sectors are not available. Necessary steps should be taken to generate annual data on real wage in major sectors separately for urban and rural areas. These data should have a recent base year and the deflators should be appropriately chosen.

For each sector, the important sub-sectors should be taken into account and appropriate weight should be attached. This is most important for manufacturing, which now consists of many new sub-sectors which did not exist before the 1990's and the published wage data for manufacturing consists of sub-sectors with low weights in recent period. In addition there is need for separate series of real wage of male and female labor force and weighted average of these two.

National sample surveys, especially HIES and LFS are useful as they provide data on both wage and underemployment. A comparison of survey results at three points during 1996 to 2006 reveals a number of interesting features of wage and underemployment.

Analysis of data on regional variation of wage shows that the former does not vary concomitantly with the changes of regional difference in head count ratio of poverty.

According to Labor Force Survey data, there has been a rise of real wage during both 1996-2000 and 2000-2006 period, although the average increase per year has been lower in the latest sub-period. Real wage in agriculture continued to increase during 2000 to 2006 period although at a decelerated pace (13.2% over the 6 year period). Since both surveys (HIES and LFS) show rise of underemployment rate and stagnation or slow growth of wage, these are likely to be correct assessments. The inconsistency between change of real wage and poverty decline over the period 2000-2005/06 makes it all the more important that a dependable real wage series is generated which can serve as a signal for the labor market as well as provide an alternative indicator of poverty situation